The bi-fuel Chevy Impala can use either CNG or gasoline.
Over the past few years, North America's massive supplies of
natural gas were supposed to lead to a renaissance in natural gas
vehicles. So far, it just hasn't happened -- at least not in any
way that's all that visible to the American public. The benefits
of natural gas as a transportation fuel include reduced tailpipe
emissions, much lower cost than gasoline or diesel, and its
benefits in reducing imported crude oil and helping drive the
As of today, there are only two factory-built natural
gas-powered cars available in the U.S.:
' Chevrolet Impala and
' Civic CNG. So while NGVs for the consumer -- and the 30% fuel
cost savings -- remain essentially dead in the U.S., there is a
shift underway in commercial transportation. While growth looked
relatively muted during the first half of the year, there's some
evidence that it will accelerate in the second half, and the
adoption trend could see years of growth going forward.
So far, several of the companies pushing this change have
underperformed, but that looks to be changing in coming years.
Let's take a closer look.
The spread has widened
Natural gas spot prices don't directly correlate to the "at the
pump" price of natural gas for vehicles, but it's a decent proxy
for demonstration purposes:
Henry Hub Natural Gas Spot Price
The wholesale price of natural gas has declined sharply, while
diesel prices have continued to rise. As of August 12, natural
gas was $3.97 per MCF, which puts it at $0.50 per gallon
equivalent. Add in the costs to transport, compress, and liquefy,
and it remains cheaper than diesel by upwards of 30%.
Opportunity for big fuel users
Heavy trucks can consume 20,000 gallons per year, compared
to less than 1,000 for the average car. Source: Clean Energy
Americans consumed over 134 billion
gallons of gasoline and 30 billion gallons of
diesel for on-road transportation last year. The gasoline
market is bigger, but widescale adoption of a new type of fuel is
challenging to roll out with so many consumers.
The diesel market is smaller, but the vehicles consume 10 to
20 times more fuel. For many fleet operators, fuel is one of the
largest line items in the budget, and cutting that cost by 20% or
more represents an attractive opportunity.
This is the idea driving both
Clean Energy Fuels
. By targeting fleet operators, both companies have a more
focused market to penetrate. Additionally, building a targeted
refueling infrastructure to support fleets is more feasible than
a national network to support passenger cars.
Cummins Westport President Gord Exel with ISX12 G
Westport Innovations has been partnered with diesel engine maker
since 2001 and makes two heavy-duty natural gas engines
that are suitable for heavy-duty vehicle applications. The ISL G
8.9 liter engine has been wildly successful in both waste removal
trucks and buses, since its launch seven years ago. The ISX12 G
11.9 liter engine for heavy trucks was launched in 2013 and has
been relatively well received, if at muted levels so far.
Westport CFO Ashoka Achutan put it thusly on the most recent
...the shipments are pretty much as we expect. The reaction
to the ISX12G has been positive, and there have been no
surprises there as far as we are concerned. We are seeing that
customers typically are placing seed orders for five or 10
units to such point they are comfortable with the integration
of the vehicle, with infrastructure, and with support. But for
the most part, all reactions we are getting on the ISX12 G have
been extremely positive.
We got one additional bit of info on the earnings call that
gives some indication that activity is indeed ramping up in the
trucks sector. Achutan again:
One of the reasons you see an uptick in both inventories and
receivables is we are wrapping up iCE PACK sales, and we had
some collections on that, as well as some prepayments on
inventories that we are building up to meet our delivery
targets for Q3 and Q4.
The iCE PACK is an LNG fuel system for heavy trucks, so
increased inventory is a positive indicator. Since every iCE PACK
unit will be sold with an ISX12 G engine, this is doubly
One of the challenges for NGV expansion has been access to fuel.
Clean Energy Fuels is the dominant provider of CNG and LNG for
fleet operators and truckers alike.
As the largest supplier of LNG for trucking, increased
inventory of iCE PACK systems at Westport is a positive
for Clean Energy Fuels. So far in 2014, Clean Energy --
which already operates 500 stations across the country -- opened
27 locations, and it announced plans last week to open another 45
The company's gallons delivered metrics -- both in CNG and LNG
-- as well as
, its brand name for renewable biomethane, are accelerating:
Data source: CLNE SEC filings.
As the table shows, fuel delivery growth is accelerating
across the board.
While much of the company's stock underperformance over the
past couple of years is tied to its heavy spending to build out a
network of stations for heavy trucking, it's now sitting on
around 60 unopened, completed stations located at Pilot/Flying J
truck stops. This has dragged on the bottom line, with debt
expense pushing $40 million per year, but the expense means the
company is prepared to open stations with only a few weeks'
notice to support trucking customers.
Pilot/Flying J is America's largest truck stop operator, so
those stations are in favorable locations.
Second half could be the onramp to acceleration
It's been a disappointing two years for investors in either of
these companies; my portfolio has the scars to prove it. Both
companies continue to lose money, though they have provided
metrics to show the trends point toward profitability.
Investing is often about being able to identify long-term
trends early, and it's looking like an acceleration in adoption
will shift both companies to profits before either faces a cash
crunch. There's risk here, but the payoff could be enormous if
those trends continue.
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Did Someone Put the Brakes on Natural Gas
Vehicles? Not So Fast
originally appeared on Fool.com.
owns shares of Clean Energy Fuels and Westport Innovations, and
holds options in Clean Energy Fuels and Westport Innovations. The
Motley Fool recommends Clean Energy Fuels and Westport
Innovations. The Motley Fool owns shares of Westport Innovations.
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